Why Does the Value of an Option Increase as the Volatility

question 47

Essay

Why does the value of an option increase as the volatility of the underlying asset increases?

---

Definitions:

Gross Margin

The difference between sales revenue and the cost of goods sold, expressed as a percentage of sales revenue.

Income Statement

A financial statement that shows a company’s revenues, expenses, and profits or losses over a specific period.

Committed Fixed Cost

Expenses a company has committed to, unrelated to its level of production or business activity.

Taxes On Real Estate

Local taxes imposed on the value of property, as determined by an assessment, by municipal authorities.